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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
COMMISSION FILE NUMBER 333-33121
LEINER HEALTH PRODUCTS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-3431709
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
901 EAST 233RD STREET, CARSON, CALIFORNIA 90745
(310) 835-8400
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
------------ ------------
COMMON STOCK, $1.00 PAR VALUE, OUTSTANDING AT NOVEMBER 8, 2000
1,000 SHARES
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LEINER HEALTH PRODUCTS INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
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<TABLE>
<S> <C>
PART I. Financial Information................................................................................... 3
ITEM 1. Financial Statements .............................................................................. 3
Condensed Consolidated Statements of Operations (Unaudited) -
For the three and six months ended September 30, 2000 and 1999 .................................... 3
Condensed Consolidated Balance Sheets -
As of September 30, 2000 (Unaudited) and March 31, 2000 .......................................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
For the six months ended September 30, 2000 and 1999 ............................................. 5
Notes to Condensed Consolidated Financial Statements (Unaudited) ...................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................................... 12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk ....................................... 18
PART II. Other Information .................................................................................... 19
SIGNATURE ...................................................................................................... 20
</TABLE>
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PART I ITEM 1
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Leiner Health Products Inc.
Condensed Consolidated Statements of Operations
Unaudited
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 165,025 $ 144,499 $ 295,118 $ 265,398
Cost of sales 129,875 112,792 234,493 203,454
------------- ------------- ------------- -------------
Gross profit 35,150 31,707 60,625 61,944
Marketing, selling and distribution expenses 18,776 17,713 37,053 35,845
General and administrative expenses 10,238 8,927 20,020 17,455
Research and development expenses 2,529 1,755 4,753 3,487
Amortization of goodwill and other intangibles 1,372 416 2,821 835
Closure of facilities - (138) - 868
Other (income) charges (1,300) 375 (14,665) 750
------------- ------------- ------------- -------------
Operating income 3,535 2,659 10,643 2,704
Loss from investment in joint venture 178 - 243 -
Interest expense, net 9,002 7,878 17,764 15,038
------------- ------------- ------------- -------------
Loss before income taxes (5,645) (5,219) (7,364) (12,334)
Benefit for income taxes (3,000) (2,420) (3,752) (5,447)
------------- ------------- ------------- -------------
Net loss $ (2,645) $ (2,799) $ (3,612) $ (6,887)
============= ============= ============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
PART I ITEM 1
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Leiner Health Products Inc.
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
------------------ ---------------
UNAUDITED NOTE 1
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,680 $ 3,008
Accounts receivable, net 106,519 127,881
Inventories 191,862 175,529
Prepaid expenses and other current assets 13,310 15,049
------------------ ---------------
Total current assets 313,371 321,467
Property, plant and equipment, net 84,033 87,093
Goodwill and other intangibles, net 76,362 76,744
Other noncurrent assets 27,948 24,156
------------------ ---------------
Total assets $ 501,714 $ 509,460
================== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Bank checks outstanding, less cash on deposit $ 2,212 $ 13,581
Accounts payable 101,805 103,815
Accrued compensation and benefits 16,854 15,380
Customer allowances payable 10,348 7,085
Other accrued expenses 8,347 15,018
Current portion of long-term debt 5,021 5,006
------------------ ---------------
Total current liabilities 144,587 159,885
Long-term debt 351,000 339,066
Other noncurrent liabilities 4,671 4,894
Commitments and contingencies
Shareholder's equity:
Common stock 1 1
Capital in excess of par value 21,851 21,851
Accumulated deficit (20,037) (16,425)
Accumulated other comprehensive (loss) income (359) 188
------------------ ---------------
Total shareholder's equity 1,456 5,615
------------------ ---------------
Total liabilities and shareholder's equity $ 501,714 $ 509,460
================== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
PART I ITEM 1
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Leiner Health Products Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
------------------------------
2000 1999
-------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,612) $ (6,887)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 6,885 4,277
Amortization 7,311 4,391
Translation adjustment 547 11
Changes in operating assets and liabilities, net of effects of acquisition
of business:
Accounts receivable 20,937 52,184
Inventories (17,139) (6,686)
Bank checks outstanding, less cash on deposit (10,436) (6,181)
Accounts payable (1,330) 8,383
Accrued compensation and benefits (1,840) (3,146)
Customer allowances payable 3,322 (2,450)
Other accrued expenses (89) 586
Income taxes payable/receivable (7,259) (8,806)
Other 1,495 (3,109)
-------------- ---------------
Net cash (used in) provided by operating activities (1,208) 32,567
INVESTING ACTIVITIES:
Additions to property, plant and equipment, net (5,494) (1,667)
Increase in other noncurrent assets (7,030) (4,466)
-------------- ---------------
Net cash used in investing activities (12,524) (6,133)
FINANCING ACTIVITIES:
Net borrowings (payments) under bank revolving credit facility 16,060 (51,525)
Borrowings under bank term credit facility - 30,000
Payments under bank term credit facility (874) (798)
Increase in deferred financing charges - (857)
Increase on other long term debt 65 -
Payments on other long-term debt (2,255) (895)
-------------- ---------------
Net cash provided by (used in) financing activities 12,996 (24,075)
Effect of exchange rate changes (592) (97)
-------------- ---------------
Net (decrease) increase in cash and cash equivalents (1,328) 2,262
Cash and cash equivalents at beginning of period 3,008 77
-------------- ---------------
Cash and cash equivalents at end of period $ 1,680 $ 2,339
============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
PART I ITEM 1
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Leiner Health Products Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for
the three and six months ended September 30, 2000 include the accounts of
Leiner Health Products Inc. and its subsidiaries, (the "Company") including
Vita Health Products Inc. ("Vita Health"). Such financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals and adjustments
recorded in connection with the acquisition of assets accounted for under the
purchase method - Note 2) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended September
30, 2000 are not necessarily indicative of the results that may be expected
for the year ended March 31, 2001 or any other future periods.
The balance sheet at March 31, 2000 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended March 31, 2000. Certain reclassifications
have been made to the fiscal 2000 condensed consolidated financial statements to
conform with the fiscal 2001 presentation.
2. ACQUISITION
On December 17, 1999, Leiner Health Products Inc. acquired substantially all
of the assets of Granutec, Inc. ("Granutec"), a manufacturer and distributor
of private label, over-the-counter pharmaceutical drugs ("OTCs") in the
United States, and Vita Health acquired substantially all of the assets of
Stanley Pharmaceuticals Ltd. ("Stanley"), a manufacturer and distributor of
private label OTCs and vitamin supplement products in Canada, both of which
were subsidiaries of Novopharm Limited of Ontario, Canada ("Novopharm"). The
Company also acquired certain related assets of Novopharm (collectively, the
"Acquisition"). On June 29, 2000, the Company reached a final settlement
agreement with Novopharm on the working capital adjustment provided for in
the acquisition agreement and, as a result, Novopharm paid the Company
$1,553,000. The Company recorded the final adjustments to the purchase
allocation during the second quarter of fiscal year 2001.
The components of the purchase price and the purchase price allocation are as
follows (in thousands):
<TABLE>
<S> <C>
Consideration and acquisition costs:
Cash paid to Novopharm............................ $ 50,000
Acquisition costs................................. 3,338
Debt assumed...................................... 7,496
Working capital adjustment........................ (1,553)
-----------------
$ 59,281
=================
Allocation of purchase price:
Current assets.................................... $ 43,083
Property, plant and equipment..................... 20,805
Acquired intangibles.............................. 9,327
Goodwill.......................................... 18,091
Debt and other liabilities assumed................ (32,025)
-----------------
$ 59,281
=================
</TABLE>
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<PAGE>
PART I ITEM 1
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Leiner Health Products Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(continued)
2. ACQUISITION (CONTINUED)
In connection with the Acquisition and the finalization of the restructuring
plans in the second quarter of fiscal year 2001, the Company has recorded
approximately $11,472,000, of restructuring charges. As a component of the
purchase price allocation, the restructuring plan includes initiatives to
integrate the operations of the Company with those of Granutec and Stanley, and
reduce overhead, primarily through the consolidation of certain acquired
manufacturing activities to existing facilities. The Company expects these
actions to result in a reduction in the acquired workforce. Management has
finalized its restructuring plans and is now working on their execution. The
Company expects the majority of the restructuring actions to occur in fiscal
years 2001 and 2002.
The following table summarizes the activity in the Company's reserves associated
with the restructuring (in thousands):
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
MARCH 31, ADDITIONS CASH SEPTEMBER 30,
2000 TO RESERVES PAYMENTS 2000
-------------- ------------- ------------ -----------------
<S> <C> <C> <C> <C>
Separation costs for terminated employees........ $ 5,400 $ 3,468 $ (305) $ 8,563
Facilities closing and downsizing................ 1,615 989 - 2,604
-------------- ------------- ------------ -----------------
Accrued restructuring costs...................... $ 7,015 $ 4,457 $ (305) $ 11,167
============== ============= ============ =================
</TABLE>
The following unaudited pro forma financial information presents the
consolidated results of operations as if the Acquisition had occurred at the
beginning of fiscal year 2000, and does not purport to be indicative of the
results that would have occurred had the Acquisition occurred at such date or of
results which may occur in the future (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 2000 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales................................ $165,025 $187,902 $295,118 $335,164
Operating income......................... 3,535 11,607 10,643 12,093
Net (loss) income........................ (2,645) 2,360 (3,612) (2,134)
</TABLE>
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
---------------- ---------------
<S> <C> <C>
Raw materials, bulk vitamins and packaging materials.......................... $ 116,039 $ 55,819
Work-in-process............................................................... 13,597 48,604
Finished products............................................................. 62,226 71,106
---------------- ---------------
$ 191,862 $175,529
================ ===============
</TABLE>
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<PAGE>
PART I ITEM 1
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Leiner Health Products Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(continued)
4. LONG-TERM DEBT
The Company and certain financial institutions have entered into an Amended and
Restated Credit Agreement (the "Credit Agreement" and together with the
subsequent amendments thereto, the "Amended Credit Agreement"). The Amended
Credit Agreement provides for one U.S. term loan due December 30, 2004 in the
amount of $68,000,000, two U.S. term loans due December 30, 2005 in the amounts
of $65,000,000 and $30,000,000, respectively, a Canadian dollar denominated term
loan due December 30, 2004 in the amount of approximately U.S. $12,000,000
(collectively, the "Term Facility"), and a revolving credit facility in the
amount of U.S. $125,000,000 (the "Revolving Facility") a portion of which is
made available to Vita Health in Canadian dollars. The unpaid principal amount
outstanding on the Revolving Facility is due and payable on June 30, 2003.
Borrowings under the Amended Credit Agreement bear interest at floating rates
that are based on the lender's base rate (9.5% at September 30, 2000), the
lender's Canadian prime rate (7.5% at September 30, 2000), LIBOR (6.81% at
September 30, 2000) or the lender's banker's acceptance rate (5.85% at September
30, 2000), as the case may be, plus an applicable margin, that is itself based
on the Company's leverage ratio (as defined in the Amended Credit Agreement).
The leverage ratio is defined generally as the ratio of total funded
indebtedness to the consolidated earnings before interest, taxes, depreciation,
amortization expense and other special charges and its effect on the applicable
margin varies as follows: (a) for U.S. and Canadian revolving credit borrowings,
from 1.0% to 2.5% for LIBOR- or banker's acceptance-based loans, and from zero
to 1.5% for alternate base rate- or Canadian prime rate-based loans, (b) for the
loans under the Term Facility, from 2.625% to 3.25% for LIBOR-based loans, and
from 1.625% to 2.25% for alternate base rate loans. As of September 30, 2000,
the Company's weighted average interest rates were 8.97% for U.S. borrowings and
8.62% for Canadian borrowings. In addition to certain agent and up-front fees,
the Amended Credit Agreement requires a commitment fee of up to 0.5% of the
average daily unused portion of the revolving facility based on the Company's
leverage ratio.
In order to manage its interest rate risk under the Amended Credit Agreement,
the Company entered into two interest protection agreements. On July 30,
1997, the Company entered into an interest protection arrangement covering
$29,460,000 of its borrowings under the Amended Credit Agreement. Under this
arrangement, the Company obtained a fixed interest rate of 6.17% on LIBOR,
instead of the fluctuating rate as described above. This agreement expired on
July 30, 2000. On October 8, 1999, the Company entered into an interest
protection agreement with respect to $54,000,000 of its indebtedness under
the Amended Credit Agreement, whereby the Company will not pay any lower than
5.94% on LIBOR rates plus applicable margin on the interest payable thereon.
In connection with this agreement, which terminates October 8, 2001, the
Company received $229,500 that is being recorded as a reduction of interest
expense over the period of the agreement.
The Amended Credit Agreement contains financial covenants that require, among
other things, the Company to comply with certain financial ratios and tests,
including those that relate to the maintenance of specified levels of cash flow
and shareholder's equity. The Company was in compliance with all such financial
covenants as of September 30, 2000. As of September 30, 2000, the Company had
$23,096,000 available under its Revolving Facility.
Principal payments on long-term debt as of September 30, 2000 through fiscal
2005 and thereafter are (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2001 .................................................... $ 2,791
2002 .................................................... 4,266
2003 .................................................... 2,798
2004 .................................................... 126,054
2005 .................................................... 83,446
Thereafter .................................................... 136,666
--------------
Total .................................................... $ 356,021
==============
</TABLE>
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<PAGE>
PART I ITEM 1
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Leiner Health Products Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(continued)
5. COMPREHENSIVE LOSS
The components of comprehensive loss for the three and six months ended
September 30, 2000 and 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- --------------------------
2000 1999 2000 1999
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss....................................... $ (2,645) $ (2,799) $ (3,612) $ (6,887)
Foreign currency translation adjustment........ (264) (77) (547) (11)
------------ ----------- ----------- -----------
Comprehensive loss............................. $ (2,909) $ (2,876) $ (4,159) $ (6,898)
============ =========== =========== ===========
</TABLE>
6. RELATED PARTY TRANSACTIONS
On June 30, 1997, Leiner Health Products Group Inc. ("Leiner Group"), the
Company's sole shareholder, and the Company entered into a consulting
agreement (the "Consulting Agreement") with North Castle Partners, L.L.C.
(the "Sponsor") to provide the Company with certain business, financial and
managerial advisory services. Mr. Charles F. Baird, Jr., Chairman of Leiner
Group's Board of Directors, acts as the managing member of the Sponsor
through Baird Investment Group, L.L.C. ("Baird Investment"). In exchange for
such services, Leiner Group and the Company have agreed to pay the Sponsor an
annual fee of $1,500,000, payable semi-annually in advance, plus the
Sponsor's reasonable out-of-pocket expenses. This fee may be reduced upon
completion of an initial public offering of Leiner Group's shares.
The Consulting Agreement terminates on June 30, 2007, unless Baird Investment
ceases to be the managing member of North Castle Partners I, L.L.C. ("North
Castle"), or upon the earliest of June 30, 2007 or the date that North Castle
ceases to exist.
7. CONTINGENCIES
On September 27, 1999, the Company filed a civil antitrust lawsuit (the
"Antitrust Lawsuit") against certain of its raw material suppliers and other
alleged co-conspirators. The complaint alleges that the defendants conspired to
fix vitamin prices and allocate vitamin production volume and vitamin customers
in the United States. The complaint seeks unspecified damages and injunctive
relief. After the lawsuit was filed, it was consolidated for pre-trial purposes
with other similar cases. Based on the pretrial schedule set forth by the court,
the case will not be ready for trial until approximately April 2002. At the
present time, management cannot predict the outcome of this lawsuit, nor the
estimated damages and potential recovery, if any.
During fiscal year 2001, the Company has entered into settlement agreements
with several of its suppliers named in the Antitrust Lawsuit (the "Settlement
Agreements"). Pursuant to the terms of the Settlement Agreements, the Company
agreed to release all claims it may have against the suppliers based on the
Company's purchases of various vitamins from the suppliers and to opt out of
any settlements in connection with the Antitrust Lawsuit in so far as it
pertains to the suppliers.
In exchange for the Company's release and agreement to opt out of any
settlements in the Antitrust Lawsuit, the Company has been awarded a
settlement in the amount of approximately $1,563,000, which is recorded in
other (income) charges in the accompanying Statements of Operations for the
quarter ended September 30, 2000. The Company also received a settlement
payment on June 30, 2000 of approximately $16,734,000, net of legal fees of
approximately $188,000, which is recorded in other (income) charges in the
accompanying Statements of Operations for the six months ended September 30,
2000. In connection with the June 30, 2000 settlement, the Company incurred
approximately $1,680,000 of consulting expenses paid in connection with the
Antitrust Lawsuit and a bonus payment of $1,150,000 awarded to certain of the
Company's key management personnel in recognition of the effect of antitrust
activity on prior years' compensation.
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<PAGE>
PART I ITEM 1
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Leiner Health Products Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(continued)
7. CONTINGENCIES (CONTINUED)
The Company is subject to other legal proceedings and claims which arise in the
normal course of business. While the outcome of these proceedings and claims
cannot be predicted with certainty, management does not believe the outcome of
any of these matters will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
8. BUSINESS SEGMENT INFORMATION
The Company operated in two reportable segments. One represents the Company's
U.S. operations, including Granutec ("Leiner U.S.") and the other represents the
Company's Canadian operations, including Stanley ("Vita Health"). The Company's
operating segments manufacture a range of vitamins, minerals and nutritional
supplements and OTCs, and distribute their products primarily through mass
market retailers. The Company evaluates segment performance based on operating
profit, before the effect of non-recurring charges and gains, and inter-segment
profit.
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<PAGE>
PART I ITEM 1
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Leiner Health Products Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(continued)
8. BUSINESS SEGMENT INFORMATION (CONTINUED)
Selected financial information for the Company's reportable segments for the
three and six months ended September 30, 2000 and 1999 is as follows (in
thousands):
<TABLE>
<CAPTION>
LEINER VITA INTERSEGMENT CONSOLIDATED
U.S. HEALTH ELIMINATIONS TOTALS
--------------- --------------- -------------------- -----------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 2000
Net sales $ 144,931 $ 20,637 $ (543) $ 165,025
Depreciation and amortization 6,132 891 - 7,023
Segment operating income 2,507 974 54 3,535
Interest expense, net 8,329 673 - 9,002
Income tax (benefit) expense (3,147) 147 - (3,000)
Segment assets 447,902 64,698 (10,886) 501,714
Expenditures for long-lived assets 1,131 305 - 1,436
THREE MONTHS ENDED SEPTEMBER 30, 1999
Net sales $ 133,519 $ 11,398 $ (418) $ 144,499
Depreciation and amortization 4,259 213 - 4,472
Segment operating income 1,859 835 (35) 2,659
Interest expense, net 7,462 416 - 7,878
Income tax benefit (2,277) (143) - (2,420)
Segment assets 357,644 32,423 (55) 390,012
Expenditures for long-lived assets (3,849) 365 - (3,484)
SIX MONTHS ENDED SEPTEMBER 30, 2000
Net sales $ 255,670 $ 40,614 $ (1,166) $ 295,118
Depreciation and amortization 12,466 1,730 - 14,196
Segment operating income 8,867 1,715 61 10,643
Interest expense, net 16,481 1,283 - 17,764
Income tax (benefit) expense (3,960) 208 - (3,752)
Segment assets 447,902 64,698 (10,886) 501,714
Expenditures for long-lived assets 4,958 536 - 5,494
SIX MONTHS ENDED SEPTEMBER 30, 1999
Net sales $ 243,702 $ 22,342 $ (646) $ 265,398
Depreciation and amortization 8,249 419 - 8,668
Segment operating income 966 1,768 (30) 2,704
Interest expense, net 14,217 821 - 15,038
Income tax (benefit) expense (5,566) 119 - (5,447)
Segment assets 357,644 32,423 (55) 390,012
Expenditures for long-lived assets 714 953 - 1,667
</TABLE>
9. SUBSEQUENT EVENTS
On November 10, 2000 the Company announced the closing of its Kalamazoo,
Michigan facility. The Company will cease all operations at the facility by
February 1, 2001. The majority of the Kalamazoo operations will be relocated
to the Company's Fort Mill, South Carolina facility. In connection with the
closure, the Company expects to incur severance charges that will be
estimated and accrued in the quarter ended December 31, 2000. In addition,
the Company will sell the existing Kalamazoo facility. Management will
estimate the facility's fair value, as well as the estimated cost to sell,
and will record the related loss, if any, in the quarter ended December 31,
2000.
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<PAGE>
PART I ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion explains material changes in the consolidated results
of operations for Leiner Health Products Inc. and its subsidiaries (the
"Company") including Vita Health Products Inc. of Canada ("Vita Health"), a
wholly-owned subsidiary, for the three months ended September 30, 2000 ("second
quarter of fiscal 2001") and the six months ended September 30, 2000, and the
significant developments affecting its financial condition since March 31, 2000.
The operating results of the acquired operations for Granutec, Inc. ("Granutec")
and Stanley Pharmaceuticals Ltd. ("Stanley") are included in the Company's
financial statements. The following discussion should be read in conjunction
with the Company's audited consolidated financial statements and notes thereto
for the year ended March 31, 2000, which are included in the Company's Annual
Report on Form 10-K, on file with the Securities Exchange Commission.
ACQUISITION
On December 17, 1999, Leiner Health Products Inc. acquired substantially all
of the assets of Granutec, Inc. ("Granutec"), a manufacturer and distributor
of private label, over-the-counter pharmaceutical drugs ("OTCs") in the
United States, and Vita Health acquired substantially all of the assets of
Stanley Pharmaceuticals Ltd. ("Stanley"), a manufacturer and distributor of
private label OTCs and vitamin supplement products in Canada, both of which
were subsidiaries of Novopharm Limited of Ontario, Canada ("Novopharm"). The
Company also acquired certain related assets of Novopharm (collectively, the
"Acquisition"). On June 29, 2000, the Company reached a final settlement
agreement with Novopharm on the working capital adjustment provided for in
the acquisition agreement and, as a result, Novopharm paid the Company
approximately $1.5 million. The Company recorded the final adjustments to the
purchase allocation during the second quarter of fiscal year 2001.
The components of the purchase price and the purchase price allocation are as
follows (in millions):
<TABLE>
<S> <C>
Consideration and acquisition costs:
Cash paid to Novopharm............................ $ 50.0
Acquisition costs................................. 3.3
Debt assumed...................................... 7.5
Working capital adjustment........................ (1.5)
-----------------
$ 59.3
=================
Allocation of purchase price:
Current assets.................................... $ 43.1
Property, plant and equipment..................... 20.8
Acquired intangibles.............................. 9.3
Goodwill.......................................... 18.1
Debt and other liabilities assumed................ (32.0)
-----------------
$ 59.3
=================
</TABLE>
In connection with the Acquisition, the Company has recorded approximately $11.5
million of restructuring charges. As a component of the purchase price
allocation, the restructuring plan includes initiatives to integrate the
operations of the Company with those of Granutec and Stanley, and reduce
overhead, primarily through the consolidation of certain acquired manufacturing
activities to existing facilities. The Company expects these actions to result
in a reduction in the acquired workforce. Management has finalized its
restructuring plans, and is now working on their execution. The Company expects
the majority of the restructuring actions to occur in fiscal year 2001 and 2002.
The following table summarizes the activity in the Company's reserves associated
with the restructuring (in millions):
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
MARCH 31, ADDITIONS CASH SEPTEMBER 30,
2000 TO RESERVES PAYMENTS 2000
-------------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
Separation costs for terminated employees........ $ 5.4 $ 3.5 $ (0.3) $ 8.6
Facilities closing and downsizing................ 1.6 1.0 - 2.6
-------------- ----------- ------------ ---------------
Accrued restructuring costs...................... $ 7.0 $ 4.5 $ (0.3) $ 11.2
============== =========== ============ ===============
</TABLE>
================================================================================
-12-
<PAGE>
PART I ITEM 2
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The following unaudited pro forma financial information presents the
consolidated results of operations as if the Acquisition had occurred at the
beginning of fiscal year 2000, and does not purport to be indicative of the
results that would have occurred had the Acquisition occurred at such date or of
results which may occur in the future (in millions).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales...................................... $ 165.0 $ 187.9 $ 295.1 $ 335.2
Operating income............................... 3.5 11.6 10.6 12.1
Net (loss) income.............................. (2.6) 2.4 (3.6) (2.1)
</TABLE>
Pro forma results for the three and six month periods ending September 30,
1999 include the benefit of the retail distribution pipeline fill of the
launch of Ranitidine. The former Granutec Division of Novopharm was operating
under a six month period of exclusivity for the sale and distribution of the
generic version of Ranitidine. This period of exclusivity began in July 1999
and provided Granutec with unusually high sales and margin results for the
exclusivity period which ended in January 2000.
SEASONALITY
The Company's business is seasonal, as increased vitamin usage corresponds with
the cough, cold and flu season. Accordingly, the Company historically has
realized a significant portion of its sales, and a more significant portion of
its operating income, in the second half of its fiscal year.
RESULTS OF OPERATIONS
The following table summarizes the Company's historical results of operations as
a percentage of net sales for the three and six months ended September 30, 2000
and 1999.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES PERCENTAGE OF NET SALES
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ---------------------------
2000 1999 2000 1999
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales.......................................... 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales...................................... 78.7 78.1 79.5 76.7
-------------- ------------- --------- ------------
Gross profit....................................... 21.3 21.9 20.5 23.3
Marketing, selling and distribution expenses....... 11.4 12.3 12.5 13.5
General and administrative expenses................ 6.2 6.2 6.8 6.6
Research and development expenses.................. 1.5 1.2 1.6 1.3
Amortization of goodwill and other intangibles..... 0.9 0.3 1.0 0.3
Closure of facilities.............................. - (0.1) - 0.3
Other (income) charges............................. (0.8) 0.2 (5.0) 0.3
-------------- ------------- --------- ------------
Operating income................................... 2.1 1.8 3.6 1.0
Loss from investment in joint venture.............. 0.1 - 0.1 -
Interest expense, net.............................. 5.4 5.4 6.0 5.7
-------------- ------------- --------- ------------
Loss before income taxes........................... (3.4) (3.6) (2.5) (4.7)
Benefit for income taxes........................... (1.8) (1.7) (1.3) (2.1)
-------------- ------------- ------------ ------------
Net loss........................................... (1.6) % (1.9) % (1.2) % (2.6) %
============== ============= ============ ============
</TABLE>
Net sales for the second quarter of fiscal 2001 were $165.0 million, an
increase of $20.5 million or 14.2% versus the second quarter of fiscal 2000.
The increase was due to an increase of $32.3 million in the Company's sales
of OTCs which was offset by a decrease in the vitamin category of $9.5
million and a decrease of $2.3 million in
================================================================================
-13-
<PAGE>
PART I ITEM 2
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
sales of other non-core products. Sales of OTCs increased primarily as a result
of the Acquisition, and the decrease in sales volume in the vitamin category was
primarily in sales of vitamin C and E, and herbs. Management estimates that the
food, drug and mass market ("FDM Market") declined approximately 3.9% in the
13-week period ended September 24, 2000 versus the comparable period in 1999.
During the six months ended September 30, 2000 net sales increased $29.7 million
or 11.2% compared to the prior year. Sales of OTCs increased by $57.6 million
primarily as a result of the Acquisition, and the vitamin category decreased by
$27.4 million, primarily from decreases in the sales volume of vitamin C and E,
and herbs. The significant shift in the Company's sales during the first half of
the fiscal year reflects the impact of the slowdown in the FDM Market for
vitamins and the additional sales in OTCs due to the Acquisition.
Gross profit for the second quarter of fiscal 2001 was $35.2 million, an
increase of $3.4 million, or 10.9%, from $31.7 million in the second quarter
of fiscal 2000. The gross profit percentage was 21.3% for the second quarter
of fiscal 2001, down from 21.9% in the second quarter of the prior fiscal
year. The decrease in gross profit as a percentage of sales is due to the
fluctuation in the product mix compared to the prior year. The increase in
sales of lower margin OTCs, combined with the effect of the decrease in sales
of higher margin vitamin products generated a decline in gross profit as a
percentage of sales. During the six months ended September 30, 2000, gross
profit decreased $1.3 million versus the first six months of fiscal year
2000. As a percentage of sales, gross profit margin decreased to 20.5% versus
23.3% in the prior year. The decrease in gross profit as a percentage of
sales during the first six months of fiscal 2001 versus fiscal 2000, is the
result of increased customer allowances, inventory reserves and increased OTCs
as a percent of the total mix versus the comparable period of fiscal 2000 as
described above.
Marketing, selling and distribution expenses, together with general and
administrative expenses, and research and development expenses (collectively,
"Operating Expenses") increased by $3.1 million, or 11.1% for the second quarter
of fiscal 2001 as compared to the comparable period in fiscal 2000. Excluding
operating expenses for Stanley and Granutec, Operating Expenses for the Company
remained at $28.4 million for the second quarter of fiscal 2001, compared to the
second quarter of fiscal 2000. As a percentage of net sales, Operating Expenses
were 19.1% during the three months ended September 30, 2000, down from 19.7%
during the comparable period in fiscal year 2000. The decrease in Operating
Expenses as a percentage of sales during the quarter is the result of
management's ongoing cost control initiatives during the quarter. For the first
six months of fiscal year 2001, Operating Expenses increased $5.0 million. The
increase is primarily the result of the Acquisition. Operating Expenses for
Granutec and Stanley accounted for $6.1 million; excluding the Acquisition,
Operating Expenses decreased by $1.1 million. The decrease is the result of
lower fixed spending on consultants and advertising during the first half of the
year, compared to the first half of fiscal 2000.
Amortization of goodwill and other intangibles increased by $1.0 million in the
second quarter of fiscal year 2001 and $2.0 million during the first six months
of the fiscal year versus the comparable periods in fiscal year 2000, primarily
as a result of the Acquisition.
During the second quarter of fiscal 2001, the Company recorded $1.3 million
of other income compared to other charges of $0.4 million in the three months
ended September 30, 1999. This change was primarily attributable to other
income generated by a settlement arising from a supplier dispute in the
amount of approximately $1.6 million. Other operating (income) charges also
includes management fees of $0.4 million for both the three months ended
September 30, 2000 and 1999. During the six months ended September 30, 2000,
other operating income was $14.7 million compared to $0.8 million of other
operating charges during the comparable period of the prior fiscal year.
Other operating income includes two settlements arising from supplier
disputes, in the amount of approximately $1.6 million and approximately $16.7
million net of legal fees of $0.2 million. In connection with these
settlements, the Company incurred approximately $1.7 million of consulting
expenses and awarded a bonus of approximately $1.1 million to certain of the
Company's key management personnel in recognition of the effect of antitrust
activity on prior years' compensation. In addition, other operating (income)
charges include $0.8 million of management fees.
In the second quarter of fiscal 2001, net interest expense of $9.0 million
represents an increase of $1.1 million from the second quarter of fiscal 2000.
Net interest expense increased by $2.7 million during the six months ended
September 30, 2000 versus the six months ended September 30, 1999. This increase
in the three and six months ended September 30, 2000 was due primarily to an
increase in the average outstanding indebtedness of the Company due to the
Acquisition and to an increase in interest borrowing rates.
================================================================================
-14-
<PAGE>
PART I ITEM 2
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The benefit for income taxes for the second quarter of fiscal 2001 was $3.0
million, compared to a $2.4 million benefit in the second quarter of fiscal
2000. During the first six months of fiscal year 2001, the benefit for income
taxes was $3.8 million compared to a benefit of $5.5 million during the
comparable period of fiscal year 2000. Based on the latest estimates, the
Company expects its effective tax rate to be approximately 38% for the remainder
of fiscal 2001.
Primarily as a result of the factors discussed above, a net loss of $2.6 million
was recorded in the second quarter of fiscal 2001 compared to a net loss of $2.8
million in the second quarter of fiscal 2000. For the six months ended September
30, 2000, the Company recorded a net loss of $3.6 million versus a net loss of
$6.9 million recorded in the comparable period of fiscal year 2000.
OTHER INFORMATION
Earnings before interest, taxes, depreciation, amortization, other non-cash
charges and the charges related to the closure of facilities ("EBITDA") totaled
$9.9 million for the second quarter of fiscal 2001, compared to $6.5 million in
the comparable period in fiscal 2000. EBITDA for the first half of fiscal year
2001, was $23.6 million or $12.3 million more than the EBITDA for the first half
of fiscal year 2000. EBITDA can be calculated from the financial statements with
the exception of the amortization of deferred debt issuance costs totaling $0.5
million for the three months ended September 30, 2000 and 1999, and $1.1 million
and $0.9 million for the six month periods ended September 30, 2000 and 1999,
respectively, which is included in interest expense in the statement of
operations and in amortization expense in the statement of cash flows. The
Company believes that EBITDA provides useful information regarding the Company's
debt service ability, but should not be considered in isolation or as a
substitute for the statements of operations or cash flow data.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash has historically been used to fund capital expenditures,
working capital requirements and debt service. The Company is required to repay
the $169.8 million in term loans outstanding as of September 30, 2000 under the
Amended Credit Agreement (defined below) by December 30, 2005 with scheduled
principal payments of $0.9 million for fiscal 2001, $1.7 million for fiscal 2002
and 2003, $36.9 million for fiscal 2004, $82.2 million for fiscal 2005, and
$46.4 million for fiscal 2006. The Company is also required to apply certain
asset sale proceeds, as well as 50% of its excess cash flow (as defined in the
Amended Credit Agreement) unless a leverage ratio test is met, to prepay the
borrowings under the Amended Credit Agreement. All outstanding revolving credit
borrowings under the Amended Credit Agreement will become due on June 30, 2003.
During the first six months of fiscal year 2001, net cash used in operating
activities totaled $1.2 million. This resulted primarily from a net loss of $3.6
million combined with $14.7 million of non cash charges to operations and
changes in operating assets and liabilities totaling $12.3 million. Changes in
operating assets and liabilities are comprised of collections of accounts
receivable of $20.9 million, a decrease of $1.3 million in accounts payable, a
decrease in other accrued expenses of $4.4 million, a decrease in the bank
checks outstanding of $10.4 million, and an increase in inventory spending of
$17.1 million. The decrease in accounts receivable and increase in inventory is
due primarily to the seasonality of the Company's business whereby sales are
normally higher during the second half of the year.
During the first six months of fiscal year 2001, net cash used in investing
activities totaled $12.5 million. This was primarily due to net capital
expenditures of $5.5 million, $4.7 million in contractual payments of customer
advances, and a $2.1 million investment in a joint venture. The major capital
expenditures related to investments in capacity expansion at the Company's
manufacturing, packaging and distribution facility in South Carolina.
Net cash provided by financing activities during the first six months of fiscal
year 2001 totaled $13.0 million, which primarily related to borrowings of $16.1
million on the Company's revolving facilities and payments in the amount of $3.1
million on other long term debt.
================================================================================
-15-
<PAGE>
PART I ITEM 2
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
FINANCING ARRANGEMENTS
The Company and certain financial institutions have entered into an Amended
and Restated Credit Agreement (the "Credit Agreement" and together with the
subsequent amendments thereto the "Amended Credit Agreement"). The Amended
Credit Agreement provides for one U.S. term loan due December 30, 2004 in the
amount of $68.0 million, two U.S. term loans due December 30, 2005 in the
amounts of $65.0 million and $30.0 million, respectively, a Canadian dollar
denominated term loan due December 30, 2004 in the amount of approximately
U.S. $12.0 million (collectively, the "Term Facility"), and a revolving
credit facility in the amount of U.S. $125.0 million (the "Revolving
Facility"), a portion of which is made available to Vita Health in Canadian
dollars. The unpaid principal amount outstanding on the Revolving Facility is
due and payable on June 30, 2003. As of November 7, 2000, the Company's
unused availability under the Amended Credit Agreement was approximately
$22.4 million.
Borrowings under the Amended Credit Agreement bear interest at floating rates
that are based on LIBOR or on the applicable alternate base rate (as defined
in the Amended Credit Agreement), plus applicable margins, and accordingly,
the Company's financial condition and performance is and will continue to be
affected by changes in interest rates. The Company entered into an interest
protection arrangement effective July 30, 1997 with respect to approximately
$29.5 million of its indebtedness under the Amended Credit Agreement that
provides a fixed rate of 6.17% on LIBOR. The agreement expired on July 30,
2000. On October 8, 1999, the Company entered into a second interest
protection agreement, with respect to $54.0 million of its indebtedness under
the Amended Credit Agreement, whereby the Company will not pay any lower than
5.94% on LIBOR rates plus applicable margin on the interest payable thereon.
In connection with this transaction, the Company received approximately $0.2
million that is being recorded as a reduction of interest expense over the
period of the agreement, which terminates October 8, 2001. The Amended Credit
Agreement imposes certain restrictions on the Company, including restrictions
on its ability to incur additional debt, enter into sale-leaseback
transactions, incur contingent liabilities, pay dividends or make
distributions, incur or grant liens, sell or otherwise dispose of assets,
make investments or capital expenditures, repurchase or prepay its senior
subordinated notes due 2007 (the "Notes") or other subordinated debt, or
engage in certain other activities. The Company must also comply with certain
financial ratios and tests, including a minimum net worth requirement, a
maximum leverage ratio, a minimum interest coverage ratio and a minimum cash
flow coverage ratio. The Company may be required to purchase the Notes upon a
Change of Control (as defined in the indenture) and in certain circumstances
with the proceeds of asset sales. The Notes are subordinated to the
indebtedness under the Amended Credit Agreement. The indenture governing the
Notes imposes certain restrictions on the Company and its subsidiaries,
including restrictions on its ability to incur additional debt, make
dividends, distributions or investments, sell or otherwise dispose of assets,
or engage in certain other activities.
A portion of the outstanding borrowings under the Amended Credit Agreement,
amounting to approximately U.S. $27.9 million as of September 30, 2000, is
denominated in Canadian dollars. All other outstanding borrowings under the
Amended Credit Agreement, and all of the borrowings under the Notes, are
denominated in U.S. dollars.
At September 30, 2000, borrowings under the Amended Credit Agreement bore
interest at a weighted average rate of 8.97% for U.S. borrowings and 8.62% for
Canadian borrowings per annum. The Notes bear interest at a rate of 9.6% per
annum.
The Company currently believes that cash flow from operating activities,
together with revolving credit borrowings available under the Amended Credit
Agreement, will be sufficient to fund the Company's currently anticipated
working capital, capital spending and debt service requirements until the
maturity of the Revolving Facility (June 30, 2003), but there can be no
assurance in this regard. The Company expects that its working capital needs
will require it to obtain new revolving credit facilities at the time that the
Revolving Facility matures, by extending, renewing, replacing or otherwise
refinancing the Revolving Facility. No assurance can be given that any such
extension, renewal, replacement or refinancing can be successfully accomplished.
================================================================================
-16-
<PAGE>
PART I ITEM 2
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PENDING ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"). SFAS No. 133 establishes new
standards for recording derivatives in interim and annual financial reports
requiring that all derivative instruments be recorded as assets or
liabilities, measured at fair value. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000, and therefore, the Company will adopt
the new requirements effective with the filing of the Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001. The Company does not
anticipate that the adoption of SFAS No. 133 will have a significant impact
on its results of operations, financial position or cash flows.
PENDING ADOPTION OF STAFF ACCOUNTING BULLETIN NO. 101
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB
No. 101"). SAB No. 101 summarizes the SEC staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company reviews its sales contracts on an ongoing basis to ensure compliance
with SAB No. 101. The Company does not anticipate that adoption of SAB No. 101
will have a material impact on previously reported or future results of
operations, financial position or cash flows.
OTHER
On November 10, 2000 the Company announced the closing of its Kalamazoo,
Michigan facility. The Company will cease all operations at the facility by
February 1, 2001. The majority of the Kalamazoo operations will be relocated
to the Company's Fort Mill, South Carolina facility. In connection with the
closure, the Company expects to incur severance charges that will be
estimated and accrued in the quarter ended December 31, 2000. In addition,
the Company will sell the existing Kalamazoo facility. Management will
estimate the facility's fair value, as well as the estimated cost to sell,
and will record the related loss, if any, in the quarter ended December 31,
2000.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Certain of the statements contained in this report (other than the financial
statements and other statements of historical fact) are forward-looking
statements, including statements regarding, without limitation, (i) the
Company's growth strategies; (ii) trends in the Company's business; and (iii)
the Company's future liquidity requirements and capital resources.
Forward-looking statements are made based upon management's current expectations
and beliefs concerning future developments and their potential effects upon the
Company. There can be no assurance that future developments will be in
accordance with management's expectations or that the effect of future
developments on the Company will be those anticipated by management. The
important factors described elsewhere in this report and in the Company's Form
10-K for the fiscal year ended March 31, 2000 (including, without limitation,
those factors discussed in the "Business - Risk Factors" section of Item 1
thereof), on file with the Securities and Exchange Commission, could affect (and
in some cases have affected) the Company's actual results and could cause such
results to differ materially from estimates or expectations reflected in such
forward-looking statements. In light of these factors, there can be no assurance
that events anticipated by the forward-looking statements contained in this
report will in fact transpire. The Company undertakes no obligation to republish
revised forward-looking statements to reflect the occurrence of unanticipated
events.
================================================================================
-17-
<PAGE>
PART II ITEM 3
================================================================================
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe that it has material exposure to interest rate,
foreign currency exchange rate or other relevant market risks. See disclosures
under Item 7a. "Quantitative and Qualitative Disclosures about Market Risks" in
the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
2000. No significant changes have occurred during the second quarter of fiscal
2001.
================================================================================
-18-
<PAGE>
PART II OTHER INFORMATION
================================================================================
ITEM 1. LEGAL PROCEEDINGS
The information in Note 7 to the Company's Condensed Consolidated
Financial Statements included herein is hereby incorporated by
reference.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule - September 30, 2000
(b) Reports on Form 8-K:
None
================================================================================
-19-
<PAGE>
================================================================================
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEINER HEALTH PRODUCTS INC.
By: /s/ STEPHEN P. MILLER
--------------------------------------
Stephen P. Miller
Senior Vice President and
Chief Financial Officer
Date: November 13, 2000
================================================================================
-20-
